If a scam works once, then the scammers will try it again and again. But inventive scammers take a rip-off that already works well and expand it into even more lucrative areas.
Take, for instance, the well established racket of 'credit brokers', who charge substantial fees upfront to find loans for small, cash-strapped businesses who have already been turned down by banks. The broker then either disappears or informs the customer that there is no deal they can find. In either case, the trusting business person loses out.
Now that scam has moved into payday loans, where people are just as desperate. Here, brokers hope to collect fees or otherwise make money from would-be borrowers, either by charging upfront for non-existent loans or passing details to others in return for commissions.
Often they will suck money out of bank accounts (almost certainly already in trouble) for fees without making it explicit to customers. This only makes matters worse, ensuring that victims will be even more eager to borrow and even less concerned about the small print of any deal they take on.
There is, of course, no guarantee that anyone will lend anything, or that subsequent 'brokers' will not demand a fee in advance. This week, the Financial Ombudsman Service joined Citizens Advice in warning would-be borrowers.
Ripped off time and again
In some of the worst cases reported by the Ombudsman, consumers’ bank accounts were debited multiple times without any warnings as victims' banking details are passed onto other credit broking websites – which send them on again.
Fraudsters know that the amounts they can grab from each victim are lower than from firms. But they hope to make up for that in a big volume increase. They reckon that 1,000 victims at £50 (£50,000) adds up to a lot more than 50 victims at £500 (£25,000) and it's less of a workload than dealing with small businesses. The fees charged can be as much as £70.
One victim went to her local Citizens Advice Bureau after she applied for a payday loan and was, within seconds, inundated with texts from other payday loan companies. Despite deciding not to take a loan, she found several sums had been taken from her bank account by different brokers within days.
Some rip-off brokers even 'franchise' the concept, using the well known scheme of 'master brokers' and 'sub-brokers', where the latter set up websites, receive leads from their masters, and pay over a percentage to them in return.
We are not a broker!
No one wants to admit to being a broker. If you put “payday loan broker” into a search engine, most of the results will headline “not a broker”. But go down to the small print of these “not a broker” outfits and you'll find some interesting disclaimers. This one is typical – the words are virtually identical on a number of sites.
“We are lenders. However, should we be unable to accept your application we may pass your details on to our business partners, who may make offers of credit to you, where you provide your express consent for us to do so. Where we pass your details on to our business partners and you enter into a loan agreement as a result, we do not charge a fee for this service but we may receive a commission from them. We only pass details to the limited number of carefully selected third party brokers.”
What are these third party brokers selected for? Low rates? Being generous to customers who fall into further financial difficulties? Or the amount of commission they will pay the firm that originated the request? And how limited is “limited”?
A growing scam
The bad news is that these scams show no sign of stopping or even slowing down. The number is increasing rapidly. But the good news is that increased regulation of payday lenders has helped.
The Ombudsman says: “So far this year (2014) more than 10,000 people have contacted the service to complain about credit broking websites, more than double the whole of 2013. But the majority of business running websites refunded the cash as soon as the ombudsman got involved. In two-thirds of complaints we investigated, we agreed that the consumer had been treated unfairly, while in the remainder of cases the fees had already been refunded. Many people using these websites thought they were applying for a loan directly and didn’t realise that they were paying a middleman.”
Senior ombudsman Juliana Francis added: “ It’s disappointing that people who are already struggling to make ends meet are being misled into thinking that these websites will get them a loan. In too many of the cases we sort out, no loan is provided and people’s bank accounts have been charged a high fee, often multiple times. If money has been taken from your account unfairly or without warning, the good news is the ombudsman is here to help.”